INFLATIONISTS vs. DEFLATIONISTS -- a compendium in progress

[ninakat]

I'm not sure when this recording was actually made -- but, it's one of his best, and most intense. It was posted on October 19, 2009 on YouTube:

<a href="http://www.youtube.com/v/8qGt4yeb6Wk&amp;ap=%2526fmt%3D18&amp;rel=0" target="_blank">http://www.youtube.com/v/8qGt4yeb6Wk&amp;ap=%2526fmt%3D18&amp;rel=0</a>

ON EDIT: This is NOT new. I found part of the same audio on another Youtube video http://tinyurl.com/yfjkt22 dated May 9, 2009. That said, what he's saying is still valid for today's dollar IMO, if not moreso.

[graveday]

I am now officially an exflationist.  I am also a schiffless motherfucker.

[ninakat]

graveday, this one's for you, and he has some good tips for how to invest:

Why Everyone Is Wrong About the Inflation/Deflation Debate

[graveday]

Thanks Ninakat.  There were some interesting responses to his comments too.

[ninakat]

Marc Faber: “Dollar Will Go To A Value Of Zero!”

<a href="http://www.youtube.com/v/qd1WCcoDsvM&amp;ap=%2526fmt%3D18&amp;rel=0" target="_blank">http://www.youtube.com/v/qd1WCcoDsvM&amp;ap=%2526fmt%3D18&amp;rel=0</a>

[graveday]

And people will still do their trade with them.  Pink ties and blue shirts will still be available.

[ninakat]

This is a very simple concept that makes a lot of sense to me, and I haven't seen this suggested elsewhere. Emphasis mine.

Inflation By Stealth
By John Browne
October 29, 2009

Over the past two years, the federal government and the Federal Reserve have dispersed trillions of public dollars, run up enormous deficits, and kept interest rates at zero. In just about any economic textbook, this combination of policies would be described as the perfect recipe for inflation. Yet, with the exception of the usual increases in health care and education, prices by and large are not rising. Many have concluded that our economic leadership has simply outsmarted the textbooks.

The benign CPI figures are serving as a rallying point behind which the financial talking-heads are forming a parade of optimism. The low CPI is their 'proof' that inflation is not a pressing concern. This view is two dimensional.

Inflation is classically described simply as an increase in the money supply. Although these changes will impact price levels, it doesn't necessarily follow that prices will rise when inflation is high. Instead, inflation may merely result in stable prices at a time when prices would otherwise be falling.

In the popular mentality, however, inflation is simply defined as prices rising. After decades of steadily rising prices, people seem to have forgotten that prices sometimes fall. In light of the bursting of a number of record-breaking, government-fueled asset bubbles, prices should be declining across the board (as they did in the Great Depression). The fact that prices are stable, or have even rallied in some sectors, indicates that inflation is already spreading across the economy.

(continues)

[ninakat]

The Next Crisis: Spiraling Inflation - Part 1
As the credit crisis ends, a bigger one is just beginning
by Nick Barisheff, Bullion Management Group Inc. | October 29, 2009

The US economy contracted for four consecutive quarters since October 2008, something we have not seen since the Great Depression. A V-shaped recovery is simply not in the cards because the credit crisis has caused deep, systemic damage. Having said that, if the recession ends this year, it certainly won’t be because the global economy is healthy.

Bank of Canada Governor John Carney and US Federal Reserve Chairman Ben Bernanke are proudly predicting that GDP will turn positive later in 2009, but much of that growth will be the result of trillions of dollars of government spending. There is only one politically acceptable way to pay for those trillions, and that is to expand the money supply at an explosive rate. That is exactly what the US Federal Reserve has been doing for the past year. But history and economics tell us that rapid increases in the money supply spell big trouble for investors because they set the stage for spiralling inflation.

Here are four big reasons to worry about inflation. (see article for the details)

1: TRILLIONS OF DOLLARS ARE BEING PRINTED OUT OF THIN AIR

2: GOVERNMENT DEBT IS AT RECORD LEVELS

3: THE CPI INFLATION INDEX DOES NOT REFLECT TRUE INFLATION

4: OIL PRODUCTION HAS ALREADY PEAKED

[graveday]

Whoa, steady state inflation.  Now that is deep in a stealthy way.

[Puchica]

ya know, last year when I was out of the house for the day, the dog turned on the bathtub faucet.  since the drain was open, it ought to have been alright, and probably was for a few hours.  the water ran out of the tub as fast as it came in.  then somehow, a tipping point was reached by some tiny degree, maybe an air bubble or something like that, so that it didn't run out quite as fast as it came in.  Probably just a tiny tipping point, but even a tiny change in an inflation/deflation balance like that tipped it toward the inflation side.  Resulting in some twenty thousand dollars of water damage to my house.   I think we're in that sort of situation now, teetering back and forth between the two.  But any tiny bubble could push the balance over to inflation, and then look out.

[Xenopus]

Here is a passionate, and IMO very convincing, deflationist:

http://theautomaticearth.blogspot.com/2009/10/october-30-2009-interview-with.html

In my opinion, deflationary deleveraging will continue until the (small amount of) remaining debt is acceptably collateralized to the (few) remaining creditors. Until that point, there can be no lasting return of the confidence required to rebuild shattered credit markets.

Deflation is ultimately psychological. Without trust we will see hoarding of the cash which will be very scarce in the absence of the credit that currently comprises the vast majority of the effective money supply. The combination of scarce cash and a very low velocity of money will be toxic.

Money is the lubricant in the economic engine and without enough of it that engine will seize up as it did in the 1930s, when farmers dumped milk they couldn’t sell into ditches while others were starving for want of the money to buy food. There was plenty of everything except money, and without money, one cannot connect buyers and sellers.

snip

In a deflationary scenario, prices fall, but purchasing power typically falls even faster, meaning that everything becomes less affordable despite the lower nominal prices. Prices in real terms, adjusted for changes in the supply of money and credit, are what matter.

[graveday]

Yep, not much change from the page one post back in January for Stoneleigh.  Some others have, like Weiss, changed their position.
I doubt Dr. Doom has though.  I have changed, as mentioned above, to exflation.  Don't ask.

[Xenopus]

Dr. Doom's de man on deflation. His posts are what finally made me figure it out.

[ralfy]

"Big Crash Coming?"

http://www.aspousa.org/index.php/2009/10/big-crash-coming/

[ArmaGoof]

"Big Crash Coming?"

http://www.aspousa.org/index.php/2009/10/big-crash-coming/

Makes sense to me.  That space between the rock and the hard place is sure getting tight!  One must wonder if those who do manage to profit once the Fed raises rates will be sufficient to supply enough employment to even minimally sustain our country.  Or will so many investors go bust that the majority of companies will be forced out of the game?

This is some scary shit he's talking:

"This new carry-trade bubble, like all previous ones, encourages reckless behavior. Banks, hedge funds and other investors appear to be leveraging up again like there’s no tomorrow—which may be the right strategy for some of them because there may not be a tomorrow, figuratively speaking.  ....  It is quite obvious that traders are hoping to “score big” while interest rates remain low. Many of them will take a bath because few will correctly anticipate the timing of events, and not everyone can get out at the top of the bubble."

Great article.  Well worth the complete read.